Question: I want to retire next year, and I'm wondering: Should I keep my money in the stock and bond markets?
Answer: First things first: You will face a bear market in retirement.
For most folks who live to a ripe old age, it's inevitable. Bear markets are part of investing, and you should expect one or two per decade.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The timing here is critical. If you suffer a bear market after several strong years of stock returns, chances are good that it's not going to dramatically affect your lifestyle in retirement.
But if you have the misfortune to experience a bear market shortly after you retire, you might see your portfolio permanently impaired.
Let's dig into this. Say you're planning to retire next year: Should you keep your money in the stock and bond markets?
The answer is probably "yes," though there are some major caveats and a handful of general rules to consider.
No two retirees are the same
You have one major priority in retirement: Ensuring you have enough income to cover your living expenses. Everything else is secondary.
Do a little math here. How much will you get every month in Social Security? Do you have other sources of guaranteed income, such as a pension or annuity?
Add these figures up, then compare them with your expenses. If your guaranteed income is enough to cover your baseline living expenses (or at least close), you can afford to take more risks with your portfolio. If the market hits a rough patch, it's not going to derail your retirement.
Let's consider another scenario: You're expecting major expenses early in retirement, such as buying a property or covering out-of-pocket medical expenses.
If you think you'll need the funds within the next four to five years, it probably makes sense to move them out of the stock market and into a short-term bond ladder or a money market fund.
Let's say you're somewhere in the middle: You plan to dip into your portfolio to cover your retirement expenses, but don't have any major imminent expenses.
What should you do?
A portfolio to start your retirement
You might live decades in retirement, so you need growth. Investing too conservatively could mean losing ground to inflation and seeing your living standards fall in your golden years.
But investing too aggressively could mean taking catastrophic losses that could permanently impair your portfolio.
How do you split that difference?
We're going to start with some general rules, which you should take with a large grain of salt. These aren't iron-clad laws of the universe. Think of them as a good starting point as you put your portfolio together.
All else equal, your portfolio should gradually glide from more aggressive to less aggressive as you age. The old rule was that your exposure to stocks should be 100 minus your age. If you're retiring at 65, you should have 35% invested in stocks and 65% invested in bonds or cash.
With life expectancies getting longer, 120 minus your age has become a common rule, as well. It might be best to think of it as a range of 100 to 120 minus your age. That 65-year-old could have something in the range of 35% to 55% in stocks, depending on your willingness and ability to take risks.
The 4% rule
You should also take the 4% rule to heart. Take a distribution of 4% of your portfolio your first year in retirement, then index it to inflation.
In a hypothetical million-dollar portfolio, you'd take a distribution of $40,000 the first year, then increase it by 2% to 3% per year.
Several studies, including the original work in the 1990s by financial planner William Bengen, have shown that 4% is a "safe" withdrawal rate. A retiree with a balanced portfolio should expect to live 30 years or more in retirement with very little risk of outliving their money.
You could probably do more than that. Bengen himself suggested earlier this year that a withdrawal rate of as high as 5.5% would likely be perfectly safe in most realistic market scenarios.
Of course, take your own longevity and any bequest motives in mind as well. If you aren't planning to leave an inheritance to your heirs and your family, or health history suggests you might not live all that long in retirement, you might as well take larger distributions earlier and really do retirement right.
Related content
-
3 Ways to Stretch the 2026 Social Security COLA For Your BudgetThree steps retirees can take to stretch the Social Security COLA to fit their budgets.
-
How to Keep Your Charitable Giving Momentum Going All YearInstead of treating charity like a year-end rush for tax breaks, consider using smart tools like DAFs and recurring grants for maximum impact all the year.
-
Uber Takes Aim at the Bottom Lines of Billboard LawyersUber has filed lawsuits and proposed a ballot initiative, in California, to curb settlements it claims are falsely inflated by some personal injury lawyers.
-
Giving Tuesday Is Just the Start: An Expert Guide to Keeping Your Charitable Giving Momentum Going All Year
Instead of treating charity like a year-end rush for tax breaks, consider using smart tools like DAFs and recurring grants for maximum impact all the year.
-
Uber Takes Aim at the Bottom Lines of Billboard Personal Injury Lawyers
Uber has filed lawsuits and proposed a ballot initiative, in California, to curb settlements it claims are falsely inflated by some personal injury lawyers.
-
Dow Slides 427 Points to Open December: Stock Market TodayThe final month of 2025 begins on a negative note after stocks ended November with a startling rally.
-
A Financial Adviser's Health Journey Shows How the 'Pink Tax' Costs WomenFact: Women pay significantly more for health care over their lifetimes. But there are some things we can do to protect our health and our financial security.
-
I'm a Cross-Border Financial Adviser: 5 Things I Wish Americans Knew About Taxes Before Moving to PortugalMoving to Portugal might not be the clean financial break you expect due to U.S. tax obligations, foreign investment risks, lower investment yields and more.
-
What to Make of a Hot IPO MarketThis year's crop of initial public offerings could be even dicier than usual because of a skew toward tech and crypto.
-
How to Position Your Portfolio for Lower Interest RatesThe Federal Reserve is far from done with its rate-cutting regime. This is how investors can prepare.
-
Show of Hands: Who Hates Taxes? The Best Time to Plan for Them Is Right NowBy creating a tax plan, you can keep more of what you've earned and give less to Uncle Sam. Here's how you can follow the rules and pay only your fair share.
